Dobrin Ivanov: We need a new EU strategy, not divisions

A Multi-Annual Financial Framework lacking vision of what we want to accomplish is just nonsense

Europe on different speeds, tracks and other similar options are unacceptable to the Bulgarian business because they would mean our country being condemned to the periphery of Europe. We are concerned that if the Eurozone is capsulated with its own budget and policies, it will be even harder for us to join it, Dobrin Ivanov, Executive Director of Bulgarian Industrial Capital Association (BICA) says in an interview to Europost.

Mr Ivanov, next year will be crucial for the EU, considering that the UK is preparing to leave the bloc and May will see the election of a new European Parliament, which will be tasked with shaping the next European Commission. What is the sentiment across the industry in anticipation of these changes? Could there be aftershocks on the horizon?

We have truly interesting months ahead of us in terms of the European Union's future. First of all there is Brexit, which is taking the second-largest European economy out of the EU. London's drive for reforms has resulted in an ill-advised step that will have huge ramifications for both sides. They will not be only budgetary; the financial damages will most likely be overcome. The political consequences are bound to be more significant because this divorce is undermining the very idea of the EU. We are seeing a turnaround in the British public's opinion but the process has already been set in motion. The UK was somewhat of an irritating factor in the EU as it always fought for its interests and managed to get concessions for itself. But the country also initiated reforms in the bloc. It combated the oversized bureaucracy and regularly sided with weaker countries like Bulgaria. So we are losing a valuable ally.

The second key event is the European Parliament election. It will inarguably be significant because it will decide not only the leadership positions in the EU for the following five years but also what policies are tabled. The new European Commission (EC) and European Parliament (EP) will determine the region's path for a decade to come. Obviously, the participation of anti-establishment parties will cause a power shift and passing of new policies. And that carries risks. Against the backdrop of rising Euroscepticism and anti-European attitudes in some countries, we still expect parties championing European unity to win and the EU to continue on the path of enhanced integration instead of division. Europe on different speeds, tracks and other similar options are unacceptable to the Bulgarian business because they would mean Bulgaria being condemned to the periphery of Europe.

Discussions are underway on the EU's next Multi-Annual Financial Framework (MFF), which will lay out the priorities for the 2021-2027 period. We are witnessing serious differences between the EP and the EC as to which policies should be supported. What is your take on this disagreement?

The budget really is the most important instrument for conducting policies and what is set out in the next seven-year framework will determine the EU's direction going forward. A big chunk of the MEPs insist on funding for youth and economic growth programmes as well as for those aimed at combating climate change. They want more investments in research and innovation by pursuing clearly defined targets. For its part, the EC suggests increase in the funds for defence and security, as well as digital economy, combined with reductions for cohesion, agricultural, and most significantly, social and regional funds. This would not be good for poorer countries like Bulgaria. But what is more noteworthy, there is no strategy for this upcoming period. We are currently following the Europe 2020 strategy that was adopted in June 2010 and its targets and financial allocations. A multi-annual framework without such vision is simply nonsense.

The EC aims for the framework to be adopted before the May election. Is it fair for the next bodies to be stuck with decisions not made by them?

I do not believe this is going to happen. At this point, we are far from a finished product. All the same, we are glad that the EC's proposal features a slight increase in cohesion policy funding for Bulgaria. The most heated discussions are those surrounding the Common Agricultural Policy (CAP). It has been implemented for decades, with billions invested, but has not proven to be effective. What is also evident is that the money is not being distributed fairly - it goes to a handful of farmers, leaving crumbs for the rest. Over the years, there have been attempts at regulation intended to eliminate these drawbacks but with little success. Looking at the proposal for the next MFF, no fundamental changes to this policy's philosophy are being envisioned.

Today, we are facing the following reality - on the one hand, we have less funding because of the UK leaving, and on the other - Member States, especially the affluent ones, are reluctant to contribute more to the European budget. So that brings us back to strategy - we must decide whether we want to move towards deeper integration or more state. The conversation is already being had, we will just have to wait and see what decisions are made.

Should we not be active in making these decisions?

Indeed, we seem more inclined to wait for someone to write down, decide what is to be done, when we should be voicing our demands with authority. Whoever's voice is heard has the chance to shape the policy.

France is seriously pressuring Germany for a separate budget for the Eurozone. Would such a development divide Europe even more?

A separate budget for the Eurozone will not be good news for Bulgaria, which is applying to adopt the euro, as you know. France offered us support, albeit with one qualifier, using the worn-out argument that the Eurozone needs to be reformed before it is enlarged. We are concerned that if the Eurozone is capsulated with its own budget and policies, it will be even harder for us to join it. Adopting the euro is a strategic goal for Bulgaria. Our association also supports this move. We believe it is the right course of action because it guarantees enhanced integration with the developed economies.

Of course, we were surprised by the condition that was posed to us at the last moment - to enter the European banking mechanism first. It was unprecedented; we accepted a simultaneous approach because the evaluation of the assets of the banks operating in Bulgaria will be useful for the country's banking system. But the very fact that additional conditions are being set is highly troublesome and we anticipate that joining the ERMII and the Eurozone itself will be delayed. The division in the EU stems namely from this discriminatory treatment, from the big nations' desire to have their own lane of development. You might remember that this was present in the five scenarios outlined in Jean-Claude Juncker's White Paper on the Future of Europe, presented in March 2017. You also surely see what is happening with our bid for the Schengen area - we meet all requirements and yet the political stance is negative.

How do you see the EU after the end of 'the Merkel era'? What can the tectonic shifts in Berlin's political landscape lead to?

Indeed, Angela Merkel is a pillar of the EU and deserves a lot of credit for its unification and integrity. Germany is not only the most powerful European economy, a role-model for the continent, but has a lot of clout in formulating the common EU policies. Merkel stood against the Eurosceptics who opposed European integration. Among her moves widely perceived as mistakes are the austerity policy, which cost Europe years to climb out of the 2008 financial crisis, and underestimating the migrant threat.

In your opinion, is it possible that Germany, France and Italy start bickering, driving the EU car into the ditch? In some European capitals the governments are now in the hands of a younger, less tolerant generation.

There is a convergence of multiple trends that are detrimental to united Europe's future - Brussels's strained relations with Poland and Hungary, and with Romania of late, the new Italian government's populist behaviour, and the tension with Russia. Indeed, if there is no balance between the big European countries, the entire project could go downhill. And it is surely the best one that Europe has come up with, following centuries of all kinds of wars. A way must be found for it to continue to function. There have always been diverging interests - between the east and the west, between the north and the south, between the rich and the relatively poor nations on the continent. Consensus solutions must be found, there needs to be understanding of the benefit of moving in one direction together.

The next multi-annual framework envisions increased co-funding for infrastructure projects. Is Bulgaria bracing for this change?

Yes, the rules of the multi-annual funding are set to be changed, affecting Bulgaria in two ways. The first is an increase in the share we will have to co-fund and the other is reduction in payments made in advance. Until now, we had the right to receive 20% of the sum in advance and use the money. Bulgaria used to cover 15% of the funding for European projects and that percentage is expected to rise to 30%. This is a big jump when we talk about billions, and it requires the utilisation of much more public resources.

It is difficult for me to say whether we will be prepared to do so. Over the past years, the national budget earmarked BGN 5bn a year for capital expenditure, primarily for investments in infrastructure, repairs of public institutions, etc. Over the last three years, these investments have been below the mark by a lot - between 30% and 50%. They are also the main reason for the budgetary surplus in 2018. So we can safely conclude that Bulgaria has the resources to meet the new EU co-funding requirements. But what happens after 2021, we cannot know. There is even talk of another financial crisis coming.

Is the Bulgarian industry involved in the process of investing in innovations and research, in the digital economy?

I have to say that the Bulgarian IT sector is developing very fast. Just in the past year it recorded 15% of growth and accounts for 2.5% of the country's GDP, a share that is expected to reach 3% by 2020. In Sofia alone, the software industry employs over 25,000 people, with the number for the entire country exceeding 100,000 people, when outsourcing is included. The IT sector has 25,000 vacancies, meaning it is not only developing fast but has a potential, if there is enough qualified workers. Actually, this is our main problem - lack of workers, which is the same with other European countries. We also have progressed in the digital economy, which grew by 8.2% in the past year, compared with an average of 3.2% for the EU's biggest Member States. Of course, we should take into account the low starting point we had.

What are Bulgarian businesses doing to support better education?

The Bulgarian business is extremely interested in reforming the country's education system. We have already made a proposal for changes to the Higher Education Act - students who received scholarships paid by taxpayers should be obligated to pay back those funds with work first, if they want to work abroad. Or simply repay the public money spent on them. It is unsustainable to keep training workers for other, richer countries. As for tertiary education, which has been devalued by the huge number of universities out there, we propose a limit of 20,000 students per year financed by the state, compared with 38,000 now. The size of the funding for universities should remain unchanged. This way, there will be more resources devoted to the education of any given student, which will raise the quality.

I should note that more money is being poured into education from the budget, especially at the high school level, with the goal of attracting quality teachers. We support this. In addition to a 20% raise in teachers' remuneration, proposals foresee 2,800 more students to be included in the dual education system. More than 200 employers will participate in the scheme. Additional funds are also being set aside for specialties considered a priority for society. Another BGN 25m are planned for out-of-class activities, which have fallen by the wayside in the last couple of decades.

There is a lot of talk lately of European value added. How can we accomplish it?

It is the multiplied effect of the union between Member States. United, we stand strong, as the motto of the Bulgarian Presidency of the Council of the EU said. This is more than a motto, it is a historically proven maxim. How can we increase the value added from this union? Well, through all that we already mentioned - common education programmes, digital economy, environmentally friendly programmes, improved operation of the single market, attracting investors and reducing the administrative burden. And there is also a topic that seemed to have fallen between the cracks in this Commission's term - the reindustrialisation of Europe. At present, industry accounts for a little over 20% of GDP, which is not enough.

Close-up

Dobrin Ivanov has master's degrees in Accounting and Auditing from the University of Economics - Varna, and in Law from the University of Plovdiv. He also has several postgraduate programmes and specialisations on his resume. Mr Ivanov has been an executive director of the Bulgarian Industrial Capital Association since 2009. He is also a deputy chair of the National Council for Employment Promotion with the Ministry of Labour and Social Policy.

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